Accessing capital can be a challenge for any business, but it’s especially difficult for small businesses that are just starting out. FundThrough aims to solve this problem by matching businesses in need of short-term financing with investors who can provide it.
The company, which launched in February, is a marketplace lender—a new breed of finance firms that pairs borrowers and lenders with an online platform, rather than providing cash itself. It’s part of a larger trend of so-called “fin tech” start-ups using the internet and other technologies to re-imagine financial services. Co-founder Steven Uster (a PROFITguide.com Expert) explains FundThrough’s model.
PROFITGuide.com: FundThrough is a marketplace lender—what does that mean?
Steven Uster: On one side we have borrowers who are interested in accessing working capital to grow their business, and they want to do it in a fast and efficient manner. And on the other side, we’ve got investors who are looking for yield, and we offer them a new short-term uncorrelated asset class, in that they can purchase short-term loans or invoices through our platform.
You’re basically matching up borrowers and lenders in a peer-to-peer type model. Marketplace lending has exploded globally in the US and in the UK, but is just in its infancy in Canada.
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You focus exclusively on lending to businesses, and not consumers. Why?
Small businesses in Canada right now don’t have access to capital from the banks to enable them to grow. If you’re a small business owner and you need money, you’re going to go into your local bank where it may take anywhere from six weeks to six months to get approved or rejected. You’ll have to fill out a pile of paper work, and it’s going to involve a lot of stress, time and effort.
So we focus on businesses that are too small or too new or just don’t want to get traditional bank financing, but need the working capital to grow. Our niche focus is on businesses that sell to other businesses.
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How do you assess whether these businesses are creditworthy?
One of the key differentiating factors for us is that we look at who you sell to. You can be small business, somebody working out of your basement, with less a million dollars of sales, or somebody who has $10 million of sales. It doesn’t really matter what your financial record is or what your track record is. If you’re selling to high quality businesses, we can fund you.
So that’s something other lenders don’t take into consideration?
Exactly. Most traditional lenders will look at your history. You have to have two to three years of financial statements available, you have to have a certain amount of net worth. Banks traditionally focus on historical information.
We focus on who you’re selling to today and tomorrow, and that enables us to provide larger dollar amounts quicker based on the credit strength of your customers. Our online application takes about five minutes to fill in, and you can get funded within days as opposed to weeks or months.
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Do you expect a competitive response front the banks?
Banks certainly will take notice, but we think they can be very good partners. Imagine a scenario where banks cannot lend to a small business because it doesn’t fit within their particular credit box, but they want to offer a value-added turndown, so they can refer you to something like FundThrough. Eventually when you are qualified for a bank loan, you can get referred back to that bank. So there’s a way for financial institutions and banks in Canada to benefit from the financial tech explosion.
So not all fin tech companies, like this one, are necessarily competitive threats?
This is not really competitive in that we are able to offer loans to companies that wouldn’t quality from traditional loans from a bank anyway. We’re in conversations with lots of different financial institutions, and we’ll see happens.
What do you think of Uster’s plans for FundThrough? Share your (constructive) thoughts and feedback in the comments below.
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